Impairment provisions beset Unicredit Tiriac Bank's 9-month profit

UniCredit Tiriac Bank, fully-owned by Italian-based UniCredit, reported 9% YoY decline in net profit for the nine months through September, to 252 million lei (€59.7 million), weighed down by impairment charges against loans that increased two-fold.

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Net profit under Romanian Accounting Standards stood at 225 million lei, up 4% from end-September 2008. The main difference between net profits data lies in the methodological disparities between IFRS and NBR regulatory framework on provisioning.

Profitability remains good given the poor economic performance throughout 2009: annualized return on equity (ROE) of 7% and return on assets (ROA) of 1.8%.

The bank reported an increase in the operating profit, to 465 million lei on 10% growth in revenues and 5% in operating expenses.

Revenues climbed in the trailing quarter versus Q2 by 10%. Cost to income ratio outperformed the market, standing at 4.7% despite network expansion by 103 new outlets over the past 21 months. Capital adequacy ratio was 11.1% according to RAS, above the proposed 10% level. UniCredit Tiriac Bank said it would continue to take prudent approach to risk. Loan impairment charges increased 47% this year, while net impairment provision costs almost doubled in the first nine months from the same period of last year.

“We had a good performance year to date, amid a global economic downturn. Results reflect a good capitalization and the fact that we added value for our customers and shareholders. We remain committed to generating revenues and to keep liquidity and capitalization at adequate levels. Credit risk awareness and its active management are critical aspects at present”, said Rasvan Radu (photo), chief executive of UniCredit Tiriac Bank.

The bank’s assets totaled 19.9 billion lei (€4.71 billion), up 18% from a year earlier. Loan book (including outsourced loans to parent bank worth almost €1 billion) reached 15.7 billion lei, same as in 2008, in line with the general stagnation trend in lending.

The bank’s asset quality continued to deteriorate in the third quarter, but within manageable limits and far from plaguing the bank’s capacity to return profit. Annualized risk cost for the period under review was 134 basis points, provision coverage ratio stood at 4.2% while NPL ratio (loans 90 days past due) in its total bank lending was 4.8%. All non-performing loans, including loans removed from balance sheets are covered by impairment provisions.